July 19 (Bloomberg) -- Housing starts in the U.S. probably
rose in June for a second month as the industry struggled to
recover in the face of foreclosures and rising unemployment,
economists said before a report today.

Construction began on 575,000 houses at an annual rate, up
2.7 percent from May, according to the median projection of
economists surveyed by Bloomberg News. Building permits,
an indicator of future projects, fell 2.3 percent to a 595,000
rate, the survey showed.

Declining home values and delays in processing foreclosures
mean it may take years to clear the market of distressed
properties, a sign a sustained gain in homebuilding will take
time to unfold. Federal Reserve Chairman Ben S. Bernanke last
week said housing remains “depressed” due in part to the
limited job and income growth that is also restraining the
broader economy.

“When you’re a builder and you’re fighting against cheaper,
foreclosed homes, you have to be cautious,” said Jennifer Lee,
a senior economist at BMO Capital Markets in Toronto. “The
housing market is one of the weaker links in the economy.”

The Commerce Department will report the figures at 8:30
a.m. in Washington. Estimates of the 71 economists surveyed by
Bloomberg ranged from 500,000 to 610,000.

The median projection for the annual pace of housing starts
in June is less than the 587,000 begun last year, the second-fewest on record. Home construction totaled 554,000 units in
2009, the lowest since record-keeping began in 1959. Starts
reached a peak of 2.07 million in 2005.

Foreclosure Pipeline

With an overhang of distressed homes making their way
through the foreclosure pipeline, more cash investors are
looking for bargain, foreclosed properties and eschewing new
houses. At the same time, unemployment above 9 percent and
strict lending standards make it harder for most Americans to
take advantage of mortgage rates that are close to a record low.

Purchases of previously owned homes, which make up about 95
percent of the market, climbed 1.9 percent in June from May’s
six-month low to a 4.9 million annual rate, according to the
median projection of economists surveyed by Bloomberg News
before a National Association of Realtors’ report tomorrow.

Purchases of existing homes slumped to a 13-year low of
4.91 million in 2010 after reaching a record 7.08 million in
2005, during the housing boom.

‘Ominous Shadow’

Lender delays in processing home-loan defaults will push as
many as 1 million foreclosure filings from this year into 2012
or beyond, casting an “ominous shadow” on the housing market,
RealtyTrac Inc., a housing data provider, said last week. A
clogged foreclosure pipeline may prevent real estate prices from
finding a bottom as the housing slump extends into a sixth year.

With home prices continuing to drop and more distressed
properties making their way to the market, builders remain
reluctant to take on new projects.

Instead, demand for apartments and other multifamily
housing that make up about a quarter of starts may be starting
to increase as more Americans become renters.

The S&P/Case-Shiller index of property values in 20 cities
fell 4 percent in April from a year earlier, the biggest drop
since November 2009, the group said last month. The index was
down 33 percent from its peak in July 2006.

Bernanke on Housing

“The high proportion of distressed sales are keeping
downward pressure on house prices,” Bernanke said July 13 in
testimony to the House Financial Services Committee. “The
demand for homes has been depressed by many of the same factors
that have held down consumer spending more generally, including
the slowness of the recovery in jobs and income as well as poor
consumer sentiment.”

A report yesterday showed homebuilder confidence improved
from a nine-month low. The National Association of Home
Builders/Wells Fargo sentiment index rose to 15 this month from
13 in June. Readings lower than 50 mean more respondents view
conditions as poor.

Some builders see signs of stabilization. Miami-based
Lennar Corp., the third-largest U.S. homebuilder by revenue,
last month reported second-quarter profits that beat analysts’
estimates on rising earnings at its distressed-investing unit.

“It is beginning to feel like the worst days of the
housing market are getting behind us,” said Stuart Miller,
chief executive officer of Lennar, on a June 23 conference call.
“Stabilization and recovery will continue to be a slow and
rocky process.”